Forex Fundamental Analysis

When trading forex, it is important to understand that there are two different analysis formats that are used. The first is technical analysis, which is based on the relationship between the supply and the demand that is represented in the currency price. With fundamental analysis, the market is always changing due to financial, economical and political factors, so it is important to consider these when choosing trades.

With fundamental analysis, there is an evaluation of economic and political nature which can have a drastic influence on a currency price or the development of a price. There are multiple indicators that can be used to conduct fundamental analysis, including Gross National Product, inflation rates, commodity price index, trade balance, CPI and PPI indexes and the unemployment rate. All of these can help traders determine how a price will fluctuate based on the economic and political stability of the country in which the currency is used.

GNP is one of the key indicators and it is in direct proportion to an exchange rate. When there is a high GNP, this will indicate that there are good economic conditions and a good flow of foreign investment. This can raise the demand for that currency. Prolonged growth of the GNP can dramatically reduce inflation and raise interest rates.

The unemployment rate in a country will offer a ration between employed and unemployed residents. This should not exceed 6%. When there is a rise in unemployment, there is a negative effect on the currency rate. Inflation will also have a similar effect.

The fundamental analysis will include events as well, which can be important for the political policies of a country. These include elections, international agreements and economical reforms. However, the main financial factor to consider is the key interest rate of central banks. These central banks will determine the profitability of investments, which can affect a country’s economic status. Growth of this indicator will offer decent opportunities for the increase of value of the currency.

Fundamental analysis is a great way for any trader to gain more knowledge and make better trades that can result in high profits. The analysis will be carried out by a professional broker or a specialist and will provide all the information needed to make a wise financial decision in regards to trading forex.

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